Why Buying A Pre-Leased Property is Best Investment Option

Naresh Arora
4 min readApr 2, 2021

Investors these days are keen on investing in commercial properties that exactly suit their businesses and other purposes. Among the many investment options available, as far as real estate investment is concerned, pre-leased properties are gaining increasing recognition in India. One of the key benefits of pre-rented property is that it is ideal for buying commercial spaces as it allows the investors to generate higher profit. Apart from commercial spaces, residential rental properties are also finding takers.

Briefly put, a pre-rented or pre-leased property is a kind of real estate investment that already has a tenant or tenants and thereby provides a buyer with guaranteed returns and a fixed income. Buyers can select from a range of pre-rented properties depending on their budget, including apartments, duplex flats, condominiums, and even residential bungalows that are leased out to corporate executives.

A pre-leased property allows investors to ensure a consistent income stream, allowing them to maximize their cash flow to a greater degree. Also, according to experts, the buyer’s goal here is to obtain a fairly good rental income in the short to medium term and then exit with a moderate to high capital gain.

Pre-rented property benefits are as follows:

Regular Returns
When an investor buys a pre-rented rental property, he/she also inherits the previous owner’s rentals and tenants. As a result, he/she receives fixed rental returns from the beginning. There is no need to wait for a suitable tenant to be found for buying the commercial space.

Capital Appreciation
In addition to regular rental returns, a pre-rented property has a good chance of capital appreciation over time. As a result, it is a profitable choice in terms of return on investment. Those properties that are located near the city or a commercial or business area would certainly command a higher price.

Low Risk
Purchasing a pre-leased property is a safe investment since the buyer is guaranteed a return as the property is rented for a fixed period of time. Certain sources suggest the yield on a pre-rented residential property varies between 3 and 5%. Furthermore, there is a slim risk that a tenant will vacate the property before the specified time period has expired.

Expectation of Higher Rent
Rental returns are inevitably going to rise over time. Even if the current tenant vacates the property at the end of the contract, there is a fair possibility that the property will be leased for a higher price.

Easy Liquidity
One of the major drawbacks of real estate investments is that they are illiquid but pre-leased, rent-yielding properties are easy to sell.

Property Maintenance
Maintaining a property becomes one of the biggest hassle for the investors but this is no longer a problem in a pre-leased property as the maintenance is taken care of by the tenant.

Buyers, on the other hand, must perform due diligence to ensure that the property and its occupant are secure to inherit. Buyers can also try to figure out the reason behind the seller selling the property. This can disclose a lot of details that may not be apparent at first glance.

The following are the main issues that prospective buyers of a pre-rented residential property should be concerned about:

Capital Value
The buyer must ascertain the vacant capital value of a pre-rented property or one in the vicinity. According to sources, the pre-rented property’s market value should be 15–20% higher than a nearby vacant property. If there is a substantial difference between the capital value of the pre-rented and vacant property (i.e. + 20% ) in the city, a buyer should investigate.

Credibility
A buyer must determine the tenant’s creditworthiness and reputation. The aim is to ensure that the occupant pays their rent on time and does not vacate the premises before the lease period expires.

Lease Term
The lease term should also be verified by the buyer. Finding a new tenant after a lease expires will take some time. This translates to fewer rentals and lower profits.

Inflated Capital Values
The capital value of a pre-rented property is normally inflated due to the returns produced. When finalizing the transaction, a buyer should remember this.

Disclaimer: The views and opinions expressed above are for informational purposes only based on industry reports and related news reports. The company does not guarantee the accuracy, effectiveness or reliability of any information shared above and shall not be held responsible for any action taken based on the published information.

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Naresh Arora

A realtor on a mission to help others in the fields with my good and bad life experience. Providing the best piece of advice to make life more enjoyable.